Nieman Foundation at Harvard
What stopped the almost-done McClatchy purchase of Tribune Publishing? Two familiar words: Michael Ferro.
Tribune and McClatchy offer competing narratives of what derailed the deal, which had been expected to be announced as early as next Monday. Instead, the Tribune board gave it a thumbs down Thursday afternoon. Was it the threat of an antitrust review of the deal? Or simply the price on the table?
Talks with numerous sources indicate it was likely the latter. At $16.50 a share — $15 of it in cash, $1.50 in McClatchy stock — the deal failed to meet Tribune’s minimum. Or, better said, former Tronc chairman Michael Ferro’s minimum.
Both Tribune Publishing and McClatchy declined to speak about the collapse of the agreement.
Tribune still wants $18 to $20 a share, sources say. Further, I’m told that McClatchy’s bid of $16.50 had been lowered to that number after the company completed a couple of months of due diligence. At $16.50, the price would have meant a reasonable 22 percent premium above Tribune’s Thursday close of $13.58.
Though its share price offer may have dropped, McClatchy’s offer was fully financed — with big names backing it, including major McClatchy financier Chatham Asset Management, JPMorgan Chase, and Apollo Global Management.
What might have driven down the offer, in addition to a Tribune Publishing share decline that saw a 52-week high of $24.74 early in the year? Another culprit would be the company’s faster-than-industry-peers decline in operating performance in the third quarter. Tribune was down 13.6 percent in topline revenue, compared to McClatchy’s own 9.2 percent and Gannett’s 5.5 percent.
Through two years of on-again, off-again potential sales of Tribune/Tronc assets, Ferro had told his associates he wanted $20 a share — a number that looks increasingly unrealistic given the depth of decline in both the newspaper industry and Tribune Publishing itself.
Ferro, forced to step down from the company’s chairmanship in March because of sexual harassment allegations, would not vote the 25 percent of the shares that he controls in favor of the deal, multiple sources tell me. That decision may have made easier by the fact that his short-time partner and longer-time nemesis — new Los Angeles Times owner Patrick Soon-Shiong, Tribune’s other 25 percent owner — favored the deal. In fact, Soon-Shiong’s support included rolling his Tribune stake into what would have been the far-larger merged McClatchy-Tribune.
As we look deeper into went wrong here, it’s worth a moment to think about what the deal might have meant to the trajectory of the local daily news industry.
A merged McClatchy would have found itself financially “deleveraged” — a good thing — but still would have struggled to find capital to support its continuing evolution from print to digital. In the last two years alone, sources tell me, the company has lowered its editorial headcount from about 1,330 to about 900.
Tribune Publishing, of course, is a new old name. Re-adopted as the company dropped the much-derided Tronc moniker in October, “Tribune” used to represent a steadfast, if somewhat stodgy, brand in the old newspaper world. Since Ferro bought into and seized control of the company not quite three years ago, it has stood for something else: chaotic and often self-serving management that skated on the edges of corporate governance convention, all well documented here at the Lab.
Ferro — who has seemed to generate his own news cycle the past few years — happened to make big news one day before Tribune’s rejection of McClatchy. NPR’s David Folkenflik, a dogged chronicler of Ferro’s and Tronc’s #MeToo-related woes, broke a story that turned Ferro’s reputation from bad to worse. With the alluring headline, “Tribune, Tronc and Beyond: A Slur, A Secret Payout and A Looming Sale,” Folkenflik quoted Ferro in a 2016 meeting with his executives as bitterly blaming his company’s issues on a “Jewish cabal,” involving among others L.A. civic leader and then-would-be L.A. Times buyer Eli Broad. (The story also included a within-the-industry juicy assertion that former Times editor-in-chief and publisher Davan Maharaj had been paid $2.5 million to keep news of the slur out of the public eye. Maharaj denies that quid pro quo.)
Often, rejected suitors come back to the table with a higher price. In this case, though, highly informed sources say that’s unlikely to happen. McClatchy won’t go above $16.50; Tribune wants more than that.
Even though Tronc has reverted to Tribune, we’re left with the same big Tronc-era question: What now?
While Donerail/AIM submitted its own bid in early November, that bid came in lower than McClatchy’s. If price is the motivating reason for the Tribune “no,” then Donerail/AIM’s bid should get the same answer. If, though, Tribune wants to cite the antitrust concern it blames for the nixing of the deal, a Donerail/AIM deal could ensue — presumably at a lower price to Tribune.
How did antitrust enter the picture — the factor Tribune blames for the deal’s undoing?
In mergers like this one, a Justice Department antitrust review is standard, and it usually comes and goes quickly without incident. In this case, the business combination of McClatchy’s Miami Herald and Tribune’s geographically adjacent (Fort Lauderdale) Sun-Sentinel raised a question: Would that be a combination that would unfairly hurt readers or advertisers?
Most observers believe the question is laughable. Dailies have long lost their local monopoly positions. Today they’re struggling for existence.
But that’s one of the questions here. Could the DOJ apply its judgment, as it did in southern California in 2016 to block Tribune’s purchase of the Orange County Register? Beyond that possibility, just the possibility of a long review — motivated by a Trumpian DOJ targeting Democrat donor Kevin McClatchy — made the deal less palatable to the Tribune, say some.
On the merits, I’m told, representatives of both Tribune and McClatchy had discounted the success of any such antitrust challenge. It’s unclear how much the fear of a politically motivated deal-closing delay contributed to Tribune’s “no.”
So, indeed, what now for Tribune? We’re unlikely to hear much about any Tribune/Donerail deal until January, at the earliest.
Ironically, in the same week that Ferro burst back into the news, another of his industry adversaries did too. Gannett CEO Bob Dickey announced his long-expected retirement. Neither of his two deputies was appointed to the job, and a national search was announced. Some would say Gannett has lacked leadership over the past couple of years, but Dickey’s departure renders that notion literal.
Gannett, McClatchy, and Tribune must now all look for their next moves in a consolidating landscape. While balance-sheet differences blur the vision of possible combinations, there are still those eyeing what may be the final print throes of the industry, looking for what profit can be wrung out — including those companies that were financing McClatchy’s would-be Tribune purchase. Newspaper M&A may wind to a quiet close at year’s end, but the forces of change will be back at work after the holidays.
